Current account rates slashed

With the media focus firmly on mortgage and savings rates since the November 1.5% interest rate cut, banks and building societies have been quietly adjusting their current account rates in what could be considered a revenue-boosting move.

The most significant move came from Intelligent Finance, which slashed its current account rate from 2.24% to 1.25%. However, there have been several high profile accounts affected with Lloyds TSB cutting the rates on its Premier Plus, Platinum Plus, Gold Plus and Classic Plus deals from 3.93% to 3.45%; and Nationwide reducing the peak interest rate on its popular Flex Account from 3.5% to 3.0%.

Other movers have included Coventry Building Society which reduced rates on several of its deals; and Norwich & Peterborough Building Society with selected in-credit interest rates on its Gold Current Account cut by 1.52%.

Why customers should act quickly

Lloyds has stated that its move was a response to the November rate cut – which should send out a stark warning to bank customers to be vigilant as the months pass with more rate cuts predicted.

Many of the leading high street banks continue to offer low rates of interest – often in the region of 0.1% - and with increased consolidation predicted there are fears that reduced competition could see rates fall further. As such, consumers should not waste time when searching for the leading deals.

Are there still good deals available?

The good news for consumers is that the top end of the current account market has remained relatively unaffected during these turbulent times with rates as high as 8.5% still available.

The Alliance & Leicester (A&L) Premier Direct current account remains arguably the best current account available both for customers in the black and in the red. If you have a balance up to £2,500 it offers in-credit interest of 8.5% fixed for one year – at which point it reverts to Bank rate minus 1% (so a current pay rate of 2%). On balances above £2,500 it offers a meagre 0.1%.

For consumers that fluctuate in and out of the red, it also includes a 12 month interest-free overdraft after which the 0% overdraft continues but a usage fee of 50p a day (up to £5 a month) applies if you use the arranged overdraft.

Other options if you want a high in-credit interest rate include the Abbey Account (Preferred In-Credit Rate) which offers 8% for the first 12 months on balances up to £2,500 and 2.5% on balances above that amount as long as £1,000 is deposited monthly.

Alternatively, if you tend to use your overdraft more often the Abbey Preferred Overdraft Rate Bank Account gives you an interest-free overdraft for the first 12 months, which then reverts to 12.9%.

If you have a larger balance, the Coventry Building Society Coventry First account is one of the most appealing on the market with a rate of 5.1%. It includes a 0.85% bonus in the first year (after which it reverts to 4.25%) and requires £1,000 to be deposited monthly. However, the high interest rate is offered on balances up to £250,000 making it one of the most competitive deals around.

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What other options are available?

A potential money saving alternative for some customers is to open a packaged account – that is a current account with a number of additional incentives.

The A&L Premier 50 Current Account for example, which is only available to over 50s, has the same interest rate and overdraft terms as the A&L Premier Direct. However, it also offers a number of packaged account benefits including health benefits, worldwide annual travel insurance with multi-trip cover for up to 31 days per trip and identity protection.

Most packaged accounts however, come with a monthly fee – and the key is to weigh up whether you’ll use the incentives attached to the account sufficiently to cover the cost of paying for your banking and still effectively “make a profit”.

For example, Abbey has launched its Travel Reward and Family Reward Bank Accounts. The benefits on both accounts add up to more than £830 each including a £100 interest-free overdraft, worldwide multi-trip travel insurance, commission-free travel money, mobile phone insurance and Green Flag motoring assistance. However, the monthly fee is £15 meaning you’ll be spending £180 a year just to keep the account open.

The in-credit interest rate on these deals is 4% but is only available on balances up to £2,500 - anything above that earns just 0.1%. However, it does not include an introductory bonus making it more appealing than the A&L deal after one year. The key however, is to ensure you will take full advantage of the incentives on offer for this deal to be the most attractive for you.

Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.

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